Service-Disabled VA Homeowners May Pay Reduced or No Funding Fees
The VA Home Loan Guaranty program is one of the best ways to finance the purchase of a home. It also can be used to refinance an existing mortgage to get a lower interest rate or take cash out of home equity.
A VA Loan gives veterans the ability to get below-market interest rates and also make now down payment, even if they don’t have a perfect credit record. The loan guaranty can be used again and again.
The Veterans Administration guarantees it will pay lenders back a portion of the loan. That means more veterans can become homeowners.
Almost anyone who has ever served in any branch of the military may be able to qualify for a VA Loan. The benefit is also available to active-duty military as well as many spouses of veterans.
One of the most attractive features of a VA Loan is that it does not require a borrower to make a down payment. Most other types of loans do.
FHA requires borrowers put down at least 3.5 percent of the purchase price. Conventional lenders require at least 3 percent.
What Is The VA Funding Fee?
VA borrowers pay a funding fee. This fee is used to pay for the costs of the VA Loan Guaranty program and make sure it is available to future borrowers.
The funding fee can range from 0.5 percent to 3.3 percent of the loan amount. The exact amount depends on several factors.
One factor determining the size of the funding fee is whether the loan is for purchase or refinancing. Another factor is whether the borrower served in the regular military or National Guard or Reserves.
Funding fees may be lower if a veteran borrower elects to make a down payment. They may also be lower for first-time users of the VA Loan program.
Unlike a down payment, the funding fee does not have to be paid in cash by the borrower. Instead, borrowers can usually add the fee to the loan balance at closing.
Who Is Exempt From Paying The Funding Fee?
Certain veteran borrowers do not have to pay any funding fees. If you are a veteran who is getting compensation from the VA for a service-connected disability, you pay no funding fee.
Retired veterans who are receiving retirement pay but would otherwise be eligible for compensation for a service-connected disability also pay no funding fees.
Another funding fee-exempt group consists of veterans who would be eligible for service-connected disability compensation if they were not receiving active duty pay.
Finally, surviving spouses of a veteran who died while in service or from a service-connected disability are exempt from funding fees.
For these fee-exempt groups of veterans, the VA Loan program is even more attractive. They make no down payment and get below-market interest rates, while avoiding the funding fees charged to other veteran borrowers.
Why Get A VA Loan?
The VA Loan program has many other appealing features. One is that VA Loans do not have to have mortgage insurance.
Mortgage insurance provides lenders with protection against losing money if a borrower doesn’t pay back the loan. Borrowers pay for this protection in the form of insurance premiums.
FHA and conventional lenders require mortgage insurance on loan with less than 20 percent down payment. The mortgage insurance premiums can add hundreds of dollars every month to the mortgage payment. VA borrowers don’t have to pay that.
It is also easier for a veteran borrower to qualify for a VA Loan. VA sets no minimum debt-to-income ratio for its borrowers.
Veterans also may be able to qualify with a lower credit score if they apply for a VA Loan. Because VA is backing part of the loan with its credit, the borrower might qualify with a credit score as low as 580.
If a veteran borrower has recently declared bankruptcy, that can make it harder to obtain a home loan. VA, however, may accept a borrower who has declared Chapter 13 bankruptcy as recently as within a year, or had a foreclosure within two years.
The VA Loan program is one of the most attractive ways to buy a home or refinance an existing loan. The funding fee exemption for veterans and spouses who qualify for service-related disability compensation makes it even more appealing.
Most mortgage lenders can quickly and easily check an applicant’s eligibility for a VA loan using the VA’s online system. To find out whether you are eligible and check today’s market rates contact your lender.